Ethanol’s Discount to Gasoline Widens as Stockpiles Rebound

By Mario Parker -
Jul 10, 2013

Ethanol’s discount to gasoline
widened after a U.S. Energy Information Administration report
showed stockpiles of the fuel rebounded from a record low.

The spread, or price difference, swelled 7.39 cents to
57.39 cents a gallon after the Energy Department’s research arm
said ethanol inventories jumped to 15.7 million barrels, led by
an 8.4 percent increase in the U.S. Midwest, the region known as
PADD 2.

That gain “represents the largest percentage increase for
the region since January of 2012,” said Michael Breitenbach, a
broker and director of research at Blue Ocean Brokerage LLC in
New York.

Denatured ethanol for August delivery climbed 1.5 cents, or
0.7 percent, to $2.441 a gallon on the Chicago Board of Trade.
Prices have gained 11 percent this year.

Gasoline for August delivery surged 8.89 cents, or 3
percent, to settle at $3.0149 a gallon on the New York
Mercantile Exchange. The contract covers reformulated gasoline,
made to be blended with ethanol before delivery to filling
stations.

Ethanol production gained 2.1 percent to 881,000 barrels a
day last week, the EIA report showed, the biggest gain since May
31 and the highest rate since June 21. That’s 7.3 percent higher
than a year earlier.

Inventories increased for the first time since June 14 and
for only the third time out of the last 10 weeks, the report
showed.

The U.S. imported 25,000 barrels a day of the fuel last
week, compared to none the previous week, EIA said.

‘Generally Tight’

“Increased production and imports are helping, but the
supply situation is still generally tight,” Breitenbach said.

The biofuel is made from corn in the U.S., with one bushel
making at least 2.75 gallons of the fuel. Last summer’s drought
reduced supply of the grain and raised production costs to make
ethanol.

Corn for September delivery rose 2 cents to settle at
$5.5375 a bushel in Chicago. One bushel makes at least 2.75
gallons of the renewable fuel.

The corn crush spread, or the cost difference between a
gallon of ethanol, based on September contracts for the fuel and
grain, was 29 cents, up from 28 cents yesterday, data compiled
by Bloomberg show.

Renewable Identification Numbers, or RINs, for corn-based
ethanol in the U.S. rose 3.8 percent to a record $1.09, data
compiled by Bloomberg show. Advanced RINs, which cover biodiesel
and Brazilian sugarcane-based ethanol, jumped 8.2 percent to
record $1.19.

The RINs are used to track adherence to a federal law
requiring the use of 13.8 billion gallons of ethanol this year.